A contractor is injured on a job site and files a workers compensation claim. The claim is valued at $85,000. If the experience modification factor increases from 1.0 to 1.25, what is the additional annual premium cost on a base premium of $12,000?
Correct Answer
C) $3,000
New premium = $12,000 × 1.25 = $15,000. Additional cost = $15,000 - $12,000 = $3,000
Why This Is the Correct Answer
Option C is correct. The new premium is calculated as: $12,000 (base) × 1.25 (new mod) = $15,000. The additional cost above the original premium of $12,000 × 1.0 = $12,000 is $15,000 − $12,000 = $3,000. The $85,000 claim value is a distractor — it does not factor into this calculation.
Why the Other Options Are Wrong
Option A: $3,600
Option A ($3,600) is incorrect. This would result from applying a 30% increase rather than the 25% increase from 1.0 to 1.25. ($12,000 × 0.30 = $3,600.)
Option B: $2,400
Option B ($2,400) is incorrect. This would result from applying a 20% increase. ($12,000 × 0.20 = $2,400.) The candidate may have confused the modifier change (0.25 above baseline) with a smaller percentage.
Option D: $4,200
Option D ($4,200) is incorrect. This would result from applying a 35% increase. ($12,000 × 0.35 = $4,200.) This may arise from adding the decimal modifier (0.25) to an incorrect baseline percentage.
Memory Technique
Experience mod math = Base × New Mod − Base × Old Mod = Base × (New − Old). Here: $12,000 × (1.25 − 1.0) = $12,000 × 0.25 = $3,000. Simply multiply the base premium by the mod change.
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